SIAM SUGGESTIONS ON GOODS & SERVICES TAX (GST)

The auto industry looks forward to introduction of GST. However, based on whatever inputs we got, there are several concerns of the industry which have been mentioned below:

Taxes to be covered/ subsumed

All kind of domestic indirect taxes should be subsumed in the proposed GST, as suggested by Kelkar Committee. This should include Road Tax/Motor Vehicle Tax also.

After introduction of GST, no additional tax should be introduced/ levied. A provision be made in the law that no new levy or tax be introduced.

Any change, if required, in future (for specific needs like calamity, education, infrastructure, etc.) should be done through modifying the rate of taxation under the GST regime and not through any additional levy/tax/cess, etc.

Bring in used vehicle trade under GST framework with a token levy to make used vehicle trade more organized.

1% GST rate will provide substantial annual revenue to the exchequer.

Tax Rates

The tax rate on inputs and output should be fixed considering the pattern of input purchase and output sales which varies considerably. This has implications for the input tax credit. While vehicle manufacturing takes place in a few states with supply to other states (local sales account for less than 10% of total domestic sales), majority of components (around 70% - 80%) are procured from vendors within the state. If tax rate of components/inputs is more than the tax rate at the time of supply of complete vehicles (Completely Built Units), then refund would arise. Hence, to avoid that, it is suggested that

Uniform rate of tax should be charged on complete vehicles (whether by way of sale or by way of transfer) and inputs, against which input credit should be allowed.

Tax paid on complete vehicles on movement from factory should be made available as input credit to the vehicle dealers.

Manufacturers could give state-wise break-up at periodically to respective state governments who may settle it through appropriate clearing house mechanism.

Considering the current level of taxation, a suitable tax rate may be adopted. Tax rates should be uniform across states and there should be one authority to which payment would be made by way of one challan.

Tax Base & Levy

Goods and services should be classified on the basis of HSN and GATTS (at both central and state level).

A common base should be adopted for taxation of both Central and State GST. Under the present taxation system, interstate sales tax and local sales tax is levied on excise duty in respect of the manufactured goods resulting in cascading of taxes.

In case of non-sale, where transaction value of goods or services is not determinable and when GST is charged, a simple mechanism of valuation could be adopted on the basis of cost.

Under GST, it is suggested that the basis of tax credit should be on ‘Cost to Business’, i.e. any tax which is paid and forms cost to business should be allowed as tax credit, both at the Central & State level.

The document based credit should also be dispensed with and could be substituted by appropriate certification by independent Chartered Accountant (or the Appointed Company Auditors). The same could be subject to appropriate audits by trained government officers and could be IT enabled.

Diesel and motor spirit should be brought under GST with input tax credit and mechanism to avail the same. VAT on diesel and motor spirit constitutes a significant element of cost for the transport industry. It is suggested that total chain of input credit should remain unbroken and hence, all inputs should be treated equally for the purpose of allowing input credit.

Others

In the proposed GST system, it is not known whether stock transfer would remain exempted from tax (at present, sales tax is not levied on Stock Transfer) or would be made taxable in the importing state; the industry needs to understand the treatment of stock transfers for the purpose of input tax credit.

There should be no distinction between input and capital goods. Presently, definition of Capital Goods under Central excise law and state VAT is not uniform. Under State VAT, definition of capital goods and also the rate of taxation vary from state to state. As regards periodicity of taking credit, excise and VAT laws differ.

In respect of existing exemptions having sunset clause, appropriate transitional provisions should be introduced to ensure continuity of existing benefits. A clarification is needed on how the existing sales tax benefit schemes e.g. loan, deferral would be affected.

The State Goods and Services Tax Act, State GST Act should be a common Act operated/implemented by all the states and Union Territories (similar to present Central Sales Tax Act) covering transactions related to goods, services and exports.

Concept of ‘Tax Invoice’ should be continued for availing State GST credit.

To ensure viability of EOU under severe competition, timely refund of tax is needed. Effective refund system should be in place for smooth operations of EOUs. Presently, EOUs are eligible to get refund of CST on interstate purchase of inputs used in the production of export goods and local VAT content of the export product is allowed to be deducted against the DTA Sales and the balance, if any, is allowed as refund.

Under a dual GST structure (a Central GST and a State GST), there could be a situation where the Input Tax credits which remain unutilized would be refunded to the assesses. Since the cross utilization of credits between the Central GST and State GST are not permitted, there could be a situation of payment on the one hand and a refund situation on the other. In order to avoid this situation cross utilisation of input tax credits should be allowed.

Procedural changes should be notified in advance. The industry should be given 6 months lead time before introduction of GST.